Rona to keep focus until Lowe’s deal goes through
DAMON VAN DER LINDE
Home reno retailer Rona Inc. wrapped up what could be its last year as a Canadian-controlled company by beating expectations on higher sales in the fourth quarter, though one analyst says this matters little to shareholders as the company is poised to accept a generous takeover offer from U.S. Lowe’s Cos Inc.
“We are on the right track and we continue to improve our network in strategic locations where consumers are not well served by the local offer and where we see opportunity for market consolidation and strong growth,” said Rona CEO Robert Sawyer in an analyst conference call Tuesday.
“Having said this, until the expected closing of the announced transaction with Lowe’s, we will continue to focus on the execution of our business plan and the realization of our financial objectives.”
The Boucherville-based firm said it had a net income of $21.2 million or 20 cents per share in the 13 weeks ended Dec. 27, compared to $17.3 million or 15 cents per share a year earlier. Rona also boasted its sixth consecutive quarterly increase in same-store sales.
For the full year, net profits decreased to $68.05 million from $78.25 million. Excluding restructuring and other costs, adjusted net income grew to $261.7 million from $235.4 million in 2014.
Rona said a good performance in Ontario and British Columbia along with warmer weather conditions prolonged the building and renovation season in several regions of the country, offsetting challenging economic conditions in Alberta and the Atlantic Provinces.
“The disciplined execution of our merchandising plans and strategic network expansion yielded positive results, despite the uncertain economy, ongoing competition and difficult market conditions in some regions,” said Sawyer.
BMO Nesbitt Burns Inc. analyst Peter Sklar said that, while the performance slightly exceeded expectations, the results are not relevant given the $3.2-billion friendly takeover offer from the U.S. home improvement giant Lowe’s.
On Feb. 3, Rona entered into an deal under which Lowe’s agreed to acquire all of the issued and outstanding common shares at a price of $24, representing a premium of 104-per-cent premium to the closing share price a day earlier.
It is also 38 per cent above Rona’s 52-week high price of $17.36 per share.
Sklar rated the results as “slightly positive,” with a target price of $24 to reflect the Lowe’s offer.
“We continue to anticipate that the transaction will proceed at the $24.00 per share offer price,” he said in a note to clients.
On the Toronto Stock Exchange, the results hardly moved the needle: Rona moved up just 0.09 per cent to $23.45 by 3:40 p.m. Tuesday.
When the Lowe’s offer was announced, however, the stock rocketed from $11.77 to $23.30.
The transaction has been approved by the boards of both companies, but it is still subject to shareholder approval.
Shareholders will be asked to vote on the transaction between Lowe’s and Rona during a special meeting on March 31, and will require the approval of 66.66 per cent of common shareholders.
After the meeting, if the vote passes, Rona will require the approval of Canada’s Competition Bureau and meet the requirements set out under the Investment Canada Act governing foreign ownership.